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During his final Federal Open Market Committee meeting as chairman of the Federal Reserve, Ben Bernanke and co continued on the path set in December, again cutting back asset purchases.

On Wednesday, the FOMC announced a $10 billion reduction in its bond-buying program to $65 billion a month. The Fed will cut monthly mortgage bond purchases to $30 billion from $35 billion. Treasury purchases will go from $40 billion to $35 billion.

The stock market initially ticked lower on the news, furthering a downward trend leading up to the 2 p.m. release. Following the release The Dow Jones Industrial Average was down 1.3% and the S&P was down about 1.1%. The 10-year treasury note yield held fast, down to 2.71.

In a press release announcing the reduction, the FOMC wrote, "Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement."

In wording nearly identical to last month's taper announcement, the release noted that the decline unemployment rate remains higher than the committee would like, but household spending and businesses investment are accelerating, even as home buying slows. Again the committee wrote, "Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."

Looking ahead, the FOMC once again noted that, "the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases."

The Fed maintained expectations that the federal funds target rate of 0% to .25% will remain low as long as unemployment remains above 6.5%. They expect inflation to be at most a half percentage point above its 2% long term target for one to two years. The statement reiterated anticipation that targets will hold "well past"when the unemployment rate declines below 6.5%.

The Fed purchased $85 billion worth of bonds each month for most of 2013 in an effort to stimulate the laggard economy. Last month, citing moderate economic expansion, the FOMC cut monthly asset purchases by $10 billion, while maintaining tight control on interest rates. Discussing the Fed’s December decision in a press conference Bernanke noted that “even after this reduction we will be continuing to add to our securities holdings at a rapid pace.”

“If you think back to last April, May, June when the fed was really hinting at tapering,” notes Kathy Jones, a fixed income strategist at Schwab, “we started to see some of riskier markets globally start to decline, not hugely but there was a decline in emerging market currencies, and commodity prices had already been falling for quite some time. I think that was an indication that the proverbial punch bowl was being pulled away."

Following the FOMC June meeting, Bernanke unveiled plans to begin cutting back asset purchases within six to 12 months. At that point investors began to realize that liquidity would be leaving the global economies that had benefited from the Fed's open pocketbook. The Dow lost more than 200 points that day and the 10-year treasury note yield jumped to 2.34%.

Markets rallied when the Fed ultimately declined to taper in September and again in October. But once tapering finally began, and markets came to anticipate more, investors began fleeing risky assets in favor of safer havens.

"My interpretation is the first phase was a recognition that there was a frothiness to certain markets," says Jones. "In the second phase we are uncovering the unwinding of positions people have probably had for a number of years. One that we talk about is the carry trade, which is where you borrow in, say, U.S. dollars because rates are so low and you invest in higher yielding currencies and earn the spread. When you start to unwind those trades after people have had them on for a couple of years, that can go very very fast.” She calls disappointing data from China’s Purchasing Manager Index the "final straw" that sent markets into their current decline.

Jones, like most Fed watchers, expected a $10 billion reduction to bond purchases, evenly split between mortgage backed securities and treasuries. While she believe "everything" factors into such decisions she notes that the Fed tends not to set policy based on global conditions, instead focusing on what is happening at home. While the Fed still hasn't hit it's targets on inflation and employment things seem to be improving.

After the economy added 200,000 or more jobs in both October and November, the light 74,000 jobs added in December caught many by surprise. But with many saying that the December slow down was due to bad weather, most didn't expect one number to convince the Fed to change course.